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p19 1b keppel manufacturing had a bad year in 2012 operating at a loss for the first 541941

P19-1B Keppel Manufacturing had a bad year in 2012, operating at a loss for the first time in its history. The company’s income statement showed the following results from selling 200,000 units of product: net sales $2,000,000; total costs and expenses $2,120,000; and net loss $120,000. Costs and expenses consisted of the following.

Total

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Variable

Fixed

Cost of goods sold

$1,295,000

$975,000

$320,000

Selling expenses

575,000

325,000

250,000

Administrative expenses

250,000

100,000

150,000

$2,120,000

$1,400,000

$720,000

Management is considering the following independent alternatives for 2013.

1. Increase unit selling price 30% with no change in costs and expenses.

2. Change the compensation of salespersons from fixed annual salaries totaling $170,000 to total salaries of $50,000 plus a 6% commission on net sales.

3. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 40:60.

Instructions

(a) Compute the break-even point in dollars for 2012.

(b) Compute the break-even point in dollars under each of the alternative courses of action. Which course of action do you recommend? (Round to the nearest dollar.)

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